Given the financial press coverage of the recent stock market declines, we would like to take the opportunity to provide some context around the market volatility.

An accumulation of events has led to a global sell-off in equity prices over the last few days. It began with the report of the decline in China’s manufacturing sector to the lowest level since 2009, the devaluation of the Chinese yuan, which, in turn, led to a sharp drop in Chinese stock prices and the roll-over to weakness in other markets. Investors also reacted to the continued weakness in crude prices and other commodities and renewed concern about the timing of the Fed’s hike in interest rates. As a result, U.S. stock markets declined sharply in the opening minutes of trading today. The S&P closed down 4% for the day and 11% from the July high.

Stock prices have been in a strong upward trend without the usual corrections during the six year bull market since the low in March 2009. The recent market decline has been importantly driven by the widespread use of quantitative momentum-driven models; there have been no basic changes in the known fundamentals. Major market declines have traditionally been driven by actions by the Fed, a bubble in commodity prices, or a recession (see below), none of which seem likely for U.S. markets. Corrections are a normal part of the market process and there should be no urgency to make any basic changes in investment positions in reaction to recent market volatility. Whatever the market trend over the immediate future, we will be assessing changes in the market activity and fundamentals to determine what actions might be appropriate to upgrade portfolio quality and take advantage of any misalignment of valuations that may occur during this time of market unease.

Of course, if you would like to discuss the current state of the markets or have questions regarding your investment portfolio, please do not hesitate to call your relationship manager. We appreciate your trust.



Note: We have gathered the information contained in this report from sources we believe reliable; however, we do not guarantee the accuracy or completeness of such information. You should not assume that any discussion or information contained in this market commentary serves as the receipt of or as a substitute for personalized investment advice from Whitnell & Co. No part of this publication may be reproduced in any form, or referred to in any other publication, without express written permission.